The complex and overlapping service tax structure is a bottle-neck not only for businessmen but also for professionals in service tax department. There are many questions which do not have easy answers. In fact, some issues are so perplexing that even departmental officers fail to come to a common viewpoint even amongst them.
The board takes a different view, while the adjudication and appellate authorities have a different stance. Time and again, the government has tried to resolve the issues but it has only succeeded in aggravating the problem.
Services provided by any person in relation to construction, repairs, alteration or restoration of buildings, civil structures or parts thereof which are used, occupied or engaged for commercial and industrial purposes are covered under the ambit of service tax. Post-construction, completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry and similar services are also taxable services. However, construction of roads is not liable to service tax. A point has been raised that if a commercial complex is constructed on adjoining roads whether the value of construction of roads would be liable to service tax.
If the contract for construction of commercial complex is a single contract and the construction of road is not recognised as a separate activity as per the contract, then service tax would be leviable on the gross amount charged for construction including the value of construction of roads. The term road can be for external as well as internal roads, they can be public roads or private roads. Such questions sow a doubt in the minds of service providers and recipients as to why there is still confusion prevailing even 17 years after the introduction of tax. As per one school of thought when services provided under a contract consist of a number of different elements, a view has to be taken on the basis of facts and circumstances of each case as to whether the service provider has made a single overall supply or a supply of different services.
However, what happens if the construction of roads is exclusively outsourced. Those engaged in construction of roads will always claim an exemption. If one looks at the true spirit of these exemptions, it's only in case of public roads. The cost of laying roads is huge and such exemption come to play an important role when project costs have to be kept low in this era of low cost affordable construction.
Similarly, there are many such issues which don't have concrete solutions. Legislative intent of service tax on rentals is a long standing dispute. Though with the introduction of the new definition, the government has tried to put an end to this issue, majority of the service providers are still not convinced and have not paid the taxes on rentals. The courts have also played a vital role in confusing the concerned. While putting a stay on retrospective effect of the changes made in the definition, some courts have paved the way for collection of the rentals prospectively.
Similarly, in case of residential construction, the term "deemed service" has again created serious doubts on the working style and intention of the service tax department. Such ambiguous terms give rise to litigations. The matter is pending before Mumbai, Chennai and Gujarat high courts. No one is sure when the matter will reach its finality. However, if one goes by the past experience, the department always has the last laugh. In such situation, the real estate construction companies will have a hard time collecting service tax from customers at a later stage. Many builders have found a way out by collecting the service tax but instead of depositing the same with the department, they keep the funds in a separate bank account and wait till the final verdict.
To many others, there are serious doubts on this methodology in as much as once the money is collected in guise of service tax; the same is to be deposited in the government exchequer. Thus, intricate and overlapping views on service tax are giving sleepless nights to all businesses including people across the table who are more concerned about achieving the service tax collection targets.